Are you horrible at balancing your checkbook? Do you find yourself struggling to save money? Whether handling money is something you struggle to get under control, or if you are just looking to find more ways to better handle your finances, then there are many reasons how learning why money management is important could actually come in handy.
What is Money Management?
By definition, money management is referred to as how well you are able to handle all aspects of your finances. This includes tracking your income, expenses, budgeting, setting long-term financial goals, investing, and spending.
Simply put, learning how to have a good sense of your finances and learning how to stick to your budget so that you can live within your means is all a part of effective money management.
Why is Money Management Important?
Now that you understand what money management is, let’s look into how improving this skill can play a role in life management.
As a parent, we all try to teach our children how to effectively spend money, but knowing how to spend money and manage it are not the same thing. Anyone can spend money but it take a skilled person to manage the money they earn.
As you progress in your career or job, there are many reasons you will want to ensure that you have the ability to wisely allocate your money but here are a few of the top reasons that having an effective financial management plan is important.
One reason many of us find it difficult to manage our money is that we don’t have a good handle on how we track our money.
When you track your expenses, you will know exactly where your money is going which will help you ensure you use your money more wisely. It will also help you to understand why you may be in debt and help you put together a strategy to get out of debt.
Creating and maintaining a budget
The most important step in money management is budgeting. As you learn to track your expenses you will need to ensure you are living within your means.
In order to achieve this, you will need to make a budget and discipline yourself to make sure you stay within these limits. If one can meet these goals, it will help make meeting savings goals, debt payments, and any other goals attainable.
Easily Analyze Your Finances
Having a good financial management plan is another way to help you quickly analyze your finances. This will help you figure out where your money is coming and going.
When you improve your money management skills it can help you learn to allocate your money more wisely and set priority on your spending. This will allow you to avoid unnecessary debts that can affect your business and household.
Better Debt Management
When you have a financial plan in place, it will be easier to manage any existing debt you may have. With the help of your new tracking skill and budgeting plans, you will now be able to prioritize your debts and know which ones to pay off and the order you want to focus on.
Creating future wealth
Good money management skills are a great way to help you set plans into motion to achieve your long term future goals. Business goals that will help you set up the lifestyle you and your family deserve and which will now be attainable because you will no longer be wasting money on the things you do not need but putting time into the things you deserve.
When you are able to properly manage your finances this will help manage your debt, control your spending, and help you make wiser decisions. As you send money with a proper financial management plan in place, this will help you to overcome debt and live a debt-free life.
Increase in savings
One of the great benefits of having good financial management is that it helps make putting money towards your savings goals that much easier and this will help increase your profits. The reason being is, having proper savings is essential for investment and business opportunities.
How to improve your money management?
Let’s be honest, money management is a skill we try to teach our children but how much time is put into educating our children about proper money management aside from counting, spending, and saving.
So let’s say you are aren’t very good at managing money by the time you are an adult. What should you do?
Don’t worry, many of us aren’t but it isn’t too late, there are still steps you can take today, to improve your money management skills.
- Start budgeting.
- Cut spending and save more.
- Set financial goals.
- Build up an emergency fund.
- Know when to get help.
1. Start budgeting
In order to gain control of your finances and learn proper money management, it all starts with a proper budgeting plan. A budget is an estimate of all your income and expenses over a given time.
Most people create a monthly or a bi-weekly budget depending on their income cycles.
2. Cut spending and save more
Let’s face it, one of the hardest thing to get a grasp of when it comes to money management is our spending. However, in order to improve your relationship with money, it is important to improve how you spend it.
Take a look at your expenses such as bank and credit card statements from the last year to get a feel for how you have been spending your money. Then you can evaluate to see which expenses can be cut to help you save more.
By paying attention to your finances, it will help you correct bad spending habits which will allow you to save more, reach your financial goals faster, and pay down debts.
3. Set financial goals
After setting a budget plan and evaluating your expenses, you will now have the means to set financial goals. So if you are looking to buy a house, get out of debt, or retire some days, the right money management skills will help you reach these goals.
Here are five steps to help you reach your goals
- Write them down. This seems to have a special effect when you are able to see your goals before you.
- Make them specific. Something like “Save money for a house” is too vague, but “Save 10k for a down payment” is more specific.
- Make them measurable.
- Give yourself a deadline.
- Make sure they’re your own goals.
Frequently check the progress on each of your goals and when you have accomplished them celebrate your progress. As needed, make sure to accommodate your goals as your needs shift.
4. Build up an emergency fund
Unexpected expenses like, medical bills, car repairs, or a sudden loss of employment can take us all by surprise, so it is important to have money tucked away to prepare for these types of emergencies.
Using a credit card to pay for these types of emergencies would set you back on your goals and cause you a great financial burden putting you further into debt.
A general rule is to set aside 3 to 6 months worth of expenses, however, there are many ways to start an emergency fund. That way you could pay for most expenses if you were to run into them.
5. Know When to Get Help
Sometimes even those of us with the best money management skills can feel like things may seem like they are getting out of control. If this is every the case, do not be ashamed to seek help.
When I was young, I used to think that financial independence and being dependent were the same thing, until I had to help someone in need.
However, there are many reasons a person’s finances could spiral out of control and you should not feel ashamed to seek help, nor should you feel like that suddenly makes you less able to manage your own finances.
One of the biggest debts affecting millions of Americans is credit card debt, however, there are many resources to help you manage and pay down this debt.
However, if you choose to not seek help and handle this dent on your own, it is best to start immediately. That way you can improve your money management skills and reach your long-term financial goals.
Money management is an essential skill that when put to use can save you a lot of time and hard aches. However, it is also something that takes a lot of self-discipline and planning. The more you put it into practice the better you will be at it.
If you do not spend the time managing your financial future, you will not be secure but taking the time to master this skill will reward you greatly!